Investing in dividend stocks is, without doubt, one of the easiest ways to generate passive income. When someone buys such a stock, they become a part owner of the underlying business, and receive cash payments out of company profits on a regular basis.
Here I’m going to put the spotlight on an under-the-radar UK dividend stock with a high yield. An investment in this company could deliver substantial passive income in the years ahead.
Reliable income
The stock in focus today is Primary Health Properties (LSE: PHP). It’s a FTSE 250 company that owns a portfolio of healthcare properties (such as GP surgeries). Its portfolio currently consists of around 500 properties across the UK and Ireland.
Should you invest £1,000 in Primary Health Properties right now?
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Primary Health Properties has a brilliant dividend track record, having increased its payout to investors for over 25 consecutive years now.
And for 2023, the company is expected to pay out 6.73p per share in dividends to shareholders. That equates to a yield of about 6.6% today at today’s share price of 102p.
Given that yield, here’s how much passive income the stock could generate (ignoring trading and platform fees) in the near term.
| Investment amount | No. of shares bought | Passive income per year |
| £1,000 | 980 | £66 |
| £5,000 | 4,901 | £330 |
| £10,000 | 9,803 | £660 |
The table shows that this stock could be a cash cow. If one invested £10k, they could be looking at income of around £660 per year.
A safer dividend stock
Now, the thing about dividends is that they’re never guaranteed. Companies can cut, cancel, or suspend them at any time.
So, the forecast for 2023 may not be accurate.
And as with any dividend stock, one needs to consider share price risk. If the company’s share price was to fall from here, it may wipe out any gains from dividends.
However, all things considered, I view Primary Health as a relatively safe dividend stock.
That’s because a large chunk (around 90%) of the company’s rental income is backed by the UK government. So, it’s unlikely to find itself in a situation where it’s unable to collect rent from its properties. Ultimately, its cash flows should be quite secure and predictable.
Primary Health Properties is a strong business creating progressive returns for shareholders by investing in healthcare real estate let on long-term leases, backed by a secure underlying covenant where the majority of rental income is funded directly or indirectly by a government body.
Primary Health Properties
Additionally, the company is well placed to benefit from the UK’s ageing population, which is likely to increase demand for healthcare in the years ahead.
Having said all that, one key risk here is higher interest rates. Most of the company’s debt is fixed or hedged (with a weighted average of over seven years). However, higher borrowing costs could eat into profits down the line. This could lead to lower dividend payments.
With the share price having come down significantly recently though, I like the risk/reward setup currently. Right now, I see this stock as a top play for passive income.
